The Libertarian party is the next group to release an alternate budget for Budget 2010 with further discussion here.

I am glad to see more people doing alternative budgets, but as always I have some concerns:

It is subject to the same criticisms as Sir Roger’s budget – namely the trade-off between equity and efficiency is not based on the revealed democratic process from the previous election … although having a transparent budget DOES mean that people know what they are voting for in the future.

The limiting scope of government in there budget is far too extreme – even if solely on efficiency grounds. Why? It ignores any scope for co-ordination issues and the such in government policy. However, the size of this issue depends on relative value judgments – so I really just think they are saying that they have a value judgment that other co-ordination issues are irrelevant, which is fair enough I guess.

Also – it presumes optimal redistribution equals zero, which is highly unlikely given that luck and the such does exist.

It targets a tax rate of zero while still having government spending – based on a belief that voluntary provision of funds will be sufficient. However, I disagree. If we want any central government we have to have some type of “coercive taxation”. Setting the tax rate to zero is effectively the same as asking for anarchism as it implies that this specific governmental institution will disappear into irrelevance.

Fundamentally, redistribution is a valid role of government – and the libertarian party bases its policy on the idea that it is not. There is no theory – even among many of the most right wing economists – that justifies zero redistribution. However, they are transparent about their value judgment here and they are consistent between budgets, so that is good of them.

So now we have an ACT and a Libertarian budget – the National (government), Labour, and Green ones will be still to come (if there are any others yell out to me). Very exciting.

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“namely the trade-off between equity and efficiency is not based on the revealed democratic process from the previous election”.

I don’t think that is really a fair criticism to make of a party not in Government (not even anywhere near parliament lol). By your logic no party outside of Government could ever criticise Government policy, as the Government was formed based on the “revealed democratic process”. It all seems a bit circular to me.

“namely the trade-off between equity and efficiency is not based on the revealed democratic process from the previous election … although having a transparent budget DOES mean that people know what they are voting for in the future”

I separated the issues. I was effectively saying:

1) Comparing the current budget to alternative budgets ignores the fact that the current one is based on a mandate – so given current settings, the disregard for revealed preferences would make it a good Budget (noun)
2) However, it is a great way to reveal policies, such that during the next election cycle people can vote if they agree with this other way of doing things.

anon

Austrian economics suggests 0 redistribution. The purpose of taxation should be entirely for servicing the protection apparatus.

Julian

Matt

A few comments

1. The efficient is the equitable. There is no trade-off nor dichotomy. Why is theft, aka redistribution, equitable?
2. The optimal level of theft equals zero. Please explain why theft, aka redistribution, can ever be optimal? And why this theft is a valid role of government? A government is actually instituted to act as our protector, not as a thug doing us over as you support.

You state that there is no theory that justifies zero redistribution. Well, Ayn Rand explicated one that you are no doubt aware of in her book Atlas Shrugged. I happen to think she did a fine job. The economist Ludwig von Mises also further developed the theory of the Austrian School of Economics advocating zero theft. Therefore, the Libertarianz party, unlike the parties that you clearly support, are advocating a budget which is not just moral, but grounded on sound economic theory.

This assumes that the initial allocation is fair, or optimal – including the allocation of “luck”.

“Therefore, the Libertarianz party, unlike the parties that you clearly support, are advocating a budget which is not just moral, but grounded on sound economic theory”

I support no political party. And any party that assumes zero redistribution is fair is using a value judgment – the realisation of value judgments has nothing to do with sound economic theory, economic theory just provides the framework we place these judgments in to reach conclusions.

Economic theory tells us how resources are allocated, that is all.

Julian

@Matt Nolan
Matt,
Austrian economics does rely on value judgements. Whose resources are you talking about? Who does the allocating? You are making value judgements right here and economics is utterly meaningless without values. Stating that economics is value free is just a way to sanction the theft of one person’s property to another.

Julian

Richard

It’s unfortunate some Marxists haven’t done an alternative budget to provide another effort as comedic as the libertarians.

While Rand’s theory in Atlas Shrugged does provide an argument I can’t help but wonder whether there’s one in L Ron Hubbard’s Battlefield Earth that could also be examined.

I’m not saying anyone is allocating – economics is about describing how allocation and distribution will change in given frameworks, not about concluding whether it is preferable or not. It is descriptive not prescriptive.

“Stating that economics is value free is just a way to sanction the theft of one person’s property to another”

O.o

Stating that economics is value free (note, I’m not saying value free per see, I am just saying we try to avoid placing value on outcomes) is just a way of saying that economics is not sufficient to reach conclusions.

Tax is not theft when it is based on an implicit social contract. With the existence of luck and the possibility of resources being allocated unfairly to start with we can’t simply talk about efficiency and state it is moral, look at Rawls my friend:

Note that I am just saying we can’t say what the optimal redistribution is – you are the one saying what one is, you are making the value judgment here. And that is what your party is based on and that is what people will vote on the basis of, so that is fair.

Julian is quite right to point out that Matt’s very definition of economics used here (i.e., “Economic theory tells us how resources are allocated, that is all”) is itself rife with value judgements, whether Matt chooses to recognise that or not.

The passage from Reisman, below, gives meaning to Julian’s point, and also concisely addresses the point of what precise values economics should uphold .

“Nevertheless, one philosophical question that must be briefly addressed here is the assertion that [economic] science and value should be kept separate and distinct—an assertion that is often made by advocates of socialism and interventionism when they are confronted with the advocacy of capitalism…

“The notion that science and value should be divorced is utterly contradictory. It itself expresses a value judgment in its very utterance. And it is not only self-contradictory, but contradictory of the most cherished principles of science as well. Science itself is built on a foundation of values that all scientists are logically obliged to defend: values such as reason, observation, truth, honesty, integrity, and the freedom of inquiry. In the absence of such values, there could be no science. The leading historical illustration of the truth of these propositions is the case of Galileo and the moral outrage which all lovers of science and truth must feel against those who sought to silence him.

“It is nonsense to argue that science should be divorced from values. No one who makes this demand has ever been able consistently to practice it. What it is proper to say is that science should be divorced from mere emotion—that it must always be solidly grounded in observation and deduction. Irrational emotion should not be confused with dedication to values, however.

“The basis of the value of capitalism is ultimately the same as the basis of the value of science, namely, human life and human reason. Capitalism is the social system necessary to the well-being and survival of human beings and to their life as rational beings. It is also necessary to the pursuit of science—to the pursuit of truth without fear of the initiation of physical force. These are all demonstrable propositions. The advocacy of capitalism by economists, therefore, should be no more remarkable, and no more grounds for objection, than the advocacy of health by medical doctors.”
– George Reisman, Capitalism, pg. 36

Mark Hubbard

Matt said:

… economics is about describing how allocation and distribution will change in given frameworks, not about concluding whether it is preferable or not.

and … the realisation of value judgments has nothing to do with sound economic theory …

Please reconcile these statements, to those you made some time ago on this blog that what guided you as an economist was a utilitarian approach (as evil as that is given ‘ “the greatest good for the greatest number of people’ has often ended up the most direct road to the Gulag).

Given that the economic method is fundamentally utilitarian I feel that I have to say a little about this.

Justice is a normative, equity based issue. Defining what is just requires making a value judgment about what is right and what is wrong. Stating that certain things are right or wrong simply tells us what value judgments we are making regarding morality. The beauty of utilitarianism is that it allows us to decompose a situation and define when something is “right” or “wrong”.

In light of the above, you seem to me to be contradicting your ‘earlier’ self here.

Mark Hubbard

Question two for you Matt, after you clarify your contradiction given in my above post. I ask this next question because of my belief that you, and I suspect the average mainstream economist working in New Zealand, ‘thinking’ you can work as an economist in a moral vacuum is a primary impediment for my pursuit of happiness, that happiness being directly proportional to the individual freedom I have to live my life according to my goals and desires, so long as I am initiating force on no other.

Thankfully, I know that pursuant to objective reality the following scenario is false, but assuming your ‘methodolgy’ led you to falsely discover that ‘sound economic theory’ dictated the greatest good for the greatest number of people was served by a tyrant such as Stalin – let’s call him the omniscient allocator – enslaving completely a minority, or even just the single individual, to the good of the ‘greatest number of people’ – let’s call them the mob – so that individual’s freedom was surfeit and thus expendable, do you still feel it is not your job as an economist to make a value judgement about the consequent policy you would be recommending through this blog, and, Ayn help us, your job? Are you finally going to call this ‘right’ or ‘wrong’?

Personally, I think you had better start thinking about what is important, about the pursuit of happiness, your happiness, and start voting in the next election accordingly. Until you do so, as with everyone like yourself, you’re the most dangerous man in New Zealand.

“But at least with his citation Matt is now conceding that his economics is indeed based upon implicit values, albeit dire ones.”

Two things with this:

1) When I reach a conclusion that isn’t just economics, but my value judgments as well. I will always concede that – as I’ve always said you can’t reach any conclusion without value judgments.

2) I agree that even before reaching a conclusion often we have to make some types of value judgments. But it becomes a matter of degree. Saying “optimal redistribution is zero” involves MORE value judgments than “optimal redistribution relies on value judgments”. I am making the second statement.

I would say that, in essence, it is my definition of utilitarianism that is likely to be weird rather than my description of economic analysis.

My view is that the frame of economic analysis allows us to describe what is going on in social situation and in society – but it does not tell us what is “right” or “wrong”. I view utilitarianism as a tool to help us build a framework for description, and I only see it as a “moral framework” once we introduce additional value judgments required to reach a conclusion.

This is the gap I keep talking about. Economics is the study of scarcity, describing scarcity, describing choices given scarcity, given institutions etc etc. But you can only reach a “conclusion” only make a moral judgment about what is “right” or “wrong” once you apply value judgments to this framework.

You are criticising the value judgments made by people when they determine policy – this is not economics.

My post was pointing out the fact that the Libertarians have made an extreme value judgment – I was not saying it was wrong, that is not my place. However, it is a fact.

Now, if you guys want to say why you believe you are making an appropriate value judgment go for it – that is cool. And people could discuss that given their own beliefs. However, there is nothing in economics that would allows me to reach a conclusion – if I say I think something is “right” or “wrong” I recognise I’m wearing a different hat.

FYI, trying to compare anyone that suggests the possibility of intervention to Stalin is patently ridiculous. I realise you feel strongly about the issue, but this is on the verge of Godwin’s law …

http://pc.blogspot.com Peter Cresswell

@Matt: In fact, saying “redistribution” at all–i.e., implying all property is available to be taken away–is already a massive value judgement, isn’ t it.

Defining a level of redistribution is involves more of a value judgment than having it as an undefined figure between 0 and X. Having it as an all encompassing set implies that we are simply describing the situation around redistribution – setting it to a figure (even zero) implies we are saying that, given that situation, this outcome is preferable.

Given the values you place on certain elements I have no doubt that the zero redistribution outcome is perfectly consistent. But it does involve making those moral judgments rather than leaving them empty. Not reaching a conclusion (as I have done) means that some moral judgments have been left empty.

I would say that economics, before making conclusions, is nearly as value-free as science. I would also note that in absolutist terms nothing is value-free. When I am stating that we are avoiding “some value judgments” my implication is that we are trying to focus on descriptive issues without inserting values that allow us to reach a conclusion.

Rachel

I thought I would add my two cents worth, I apologize if my comments are repeating previous ones made I have only skim-read the above comments.

First off I think the role of private charity is an important point to make when talking about optimal redistribution, as some of the slack will be picked up by private charities. Of course there is a free-rider problm when it comes to private charity that will make redistribution sub-optimal compared to a rawlsian type social contract, however I don’t believe there is any reason to view this as inherently less optimal than the level of redistribution chosen by the democratic process which won’t reflect the rawls social contract since people already know their postion in the world. So as you say the libertarianz assume that the optimal level of govt enforced redistribution is zero, I agree it is unlkely to be optimal from a social contract sense but from a ‘best available option’ sense it may well be (and my idealogical leanings would suggest it is, but of course there is plenty of room for debate).

Secondly, (and this is a bit of a pet peeve of mine) is that all the talk of social contracts when talking about national policies seems to implicitly assume only people within that nation count and also all citizens don’t care about non-citizens. If we put equal weight on every person in the world then the optimal level of redistribution within NZ is probably zero and any redistribution would be taking from NZers and giving to overseas. I don’t believe the libertarianz budget had any foreign aid in it, however it could well be the case that the efficiency advances from their budget could increase the amount of private charity that goes to, say, African causes and in my social welfare function where every person in the world is given equal weight, then this is closer to the optimal level of redistribution. Of course there is debate as to what the appropriate weight for non-citizens should be if we are going to use a social contract framework for national policy, but it irritates me that it is so often implicitly assumed to be zero.

So basically I believe there is adequate reason to believe the optimal level of government redistribution (given feasible options) within NZ could quite likely be zero, without even having to touch a ‘taxation is theft’ argument.

Mark Hubbard

FYI, trying to compare anyone that suggests the possibility of intervention to Stalin is patently ridiculous.

For the record, look at my post: I did not state it in the manner you suggest. I made the extreme example to make the point.

1) Stalin used utilitarianism to justify enslaving a minority for the greater good
2) Therefore, utilitarianism is immoral.

To quote the (almost) entire paragraph:

“but assuming your ‘methodolgy’ led you to falsely discover that ’sound economic theory’ dictated the greatest good for the greatest number of people was served by a tyrant such as Stalin – let’s call him the omniscient allocator – enslaving completely a minority, or even just the single individual, to the good of the ‘greatest number of people’ – let’s call them the mob – so that individual’s freedom was surfeit and thus expendable, do you still feel it is not your job as an economist to make a value judgement about the consequent policy you would be recommending through this blog, and, Ayn help us, your job? Are you finally going to call this ‘right’ or ‘wrong’?”

An economist doesn’t say – lets enslave this group or value this groups happiness above another. An economist tries to find the trade-offs inherent in choices, the example of Stalinist policies seems to ignore the trade-offs by shifting to a random extreme POV.

Following this I am concerned that the point of what I am saying may not be clear, as a result let me try to restate what I am trying to do here with these posts on the budget.

Fundamentally, I have stated that there is an economy where people make choices and face trade-offs, and there is a number of institutions including government. The libertarians are one of a number of parties who want to guide the choices of government – which thereby impacts on everyone else.

Looking at the trade-offs that occur when the government makes a choice, the policies the Libertarians want to put in place imply a different weighting of these trade-offs than other parties. That is all.

I called it extreme because, if we drew a continuous line of possible policies from government, you guys would fall on the edge of the line – not because I am stating I am personally against anything.

When I vote, as a person, I will make value judgments on these issues. When I try to recognise trade-offs as an economist I will just try to list down trade-offs. I hope this makes the distinction I am trying to make clearer.